Marijuana Industry May Be Barred From Bankruptcy

Bankruptcy Lawyer Bryan W. Stone answers the question: “I’m owed money by someone that filed bankruptcy. What can I do now?”

Most people understandably assume that if you own a business, whatever it is, you have the ability to seek bankruptcy protection if the need should arise. After all, the bankruptcy code doesn’t allow for judgments on the societal value of the business, all companies are seen as equally able to seek the protection of the bankruptcy system.

A recently issued memo from the director of the U.S. Bankruptcy Trustee Program seems to require a rethinking of that notion. The letter was addressed to bankruptcy trustees located across the country who find themselves presiding over cases involving marijuana or marijuana-related assets.

The short note said that there has been a noticeable increase in the number of bankruptcy cases involving marijuana assets being disclosed to the courts. The director of the Trustee Program reminded the trustees that marijuana is illegal under federal law and warned them not to be involved, in any way, with the handling of marijuana-related property or money.

The role of a bankruptcy trustee is to oversee the bankruptcy process, making sure that debtors reveal their assets and that creditors receive as much money as possible before the remaining debts are discharged. As part of this effort, trustees are often required to receive monthly payments from debtors and then pay out that money to creditors. In other cases, trustees have to seize assets and sell them, distributing the proceeds to creditors.

According to the Trustee Program, their goal is not to wade into the growing dispute between some states and the federal government as it relates to drug policy. Instead, the Trustee Program claims it was only trying to ensure that trustees don’t accidentally place themselves in danger of violating federal law by receiving profits from the sale of marijuana or marijuana-related assets.

The difference in the way that the federal and state governments are handling marijuana has caused consternation on many fronts, including in the bankruptcy system. Several bankruptcy judges have been forced to reject bankruptcy claims by those involved in the marijuana industry, even in states like Washington or Colorado where state laws make the activity perfectly legal.

Just recently, a judge in Colorado dismissed a case filed by a medical marijuana grower who filed for bankruptcy protection. In that case, the debtor listed more than $100,000 in unharvested marijuana as an asset in the bankruptcy petition. This was enough to get the judge to kick the case. The same thing happened a few years ago when a federal judge in Denver dismissed the bankruptcy petition filed by another marijuana grower. The judge said that their case would force a trustee into the untenable position of having to sell marijuana plants for profit, something that is a federal crime. The hope is that this growing gap between federal and state practice can be closed as it only succeeds in creating needless uncertainty surrounding an already confusing area of the law.

If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.